Intel - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 revenue was $12.7B (flat YoY) and non-GAAP EPS was $0.13, both above prior guidance; GAAP EPS was $(0.19).
• Versus S&P Global consensus, Intel delivered a significant beat: revenue $12.67B vs $12.31B* and EPS $0.13 vs ~$0.00*; Values retrieved from S&P Global.
• Management lowered 2025 OpEx target to $17B (from $17.5B) and reduced 2025 gross capex target to $18B (from $20B), while maintaining net capex at $8–$11B.
• Q2 2025 outlook is wide amid tariff/macro uncertainty: revenue $11.2–$12.4B, non-GAAP GM ~36.5%, and non-GAAP EPS $0.00.
• Strategic actions (org flattening, asset monetization including 51% Altera sale) and foundry execution (18A ramp in 2H25) are core near-term stock catalysts.

What Went Well and What Went Wrong

• What Went Well

  • Non-GAAP gross margin (39.2%) and EPS ($0.13) exceeded internal guide, helped by stronger Xeon sales and mix toward Raptor Lake; CFO noted Q1 was “a solid start” despite macro uncertainty.
  • DCAI revenue rose 8% YoY to $4.1B; hyperscaler demand for host CPUs/storage compute outperformed expectations.
  • OpEx discipline: GAAP R&D+MG&A down 19% YoY (to $4.8B); non-GAAP down 15% (to $4.3B); management announced further structural cost reductions and org simplification.

• What Went Wrong

  • Client Computing Group revenue fell 8% YoY to $7.6B; management cited competitive pressure, product mix, and consumer macro headwinds driving preference for N-1/N-2 parts (Raptor Lake) over higher-cost AI PC platforms (Meteor/Lunar).
  • GAAP gross margin compressed YoY (36.9% vs 41.0%), reflecting cost/mix headwinds and startup costs for 18A ramp; Intel Foundry posted a $2.3B operating loss.
  • Tariff/regulatory risks prompted a wider Q2 guide and caution about potential TAM contraction, with management warning June could be softer despite a strong quarter start.

Transcript

Operator (participant)

For standing by, and welcome to the Intel Corporation's First Quarter 2025 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you'll need to press star one one on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star one one again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, John Pitzer, Corporate Vice President, Investor Relations. Please go ahead, sir.

John Pitzer (VP of Investor Relations)

Thank you, Jonathan, and good afternoon to everyone joining us today. By now, you should have received a copy of the Q1 Earnings Release and Earnings Presentation, both of which are available on our Investor Relations website, intc.com. For those joining us online today, the earnings presentation is also available in our webcast window. I'm joined today by our CEO, Lip-Bu Tan, and our CFO, David Zinsner. Lip-Bu will open with comments on our first quarter results, as well as some initial observations, priorities, and actions that he is driving. Dave will then discuss our overall financial results, including second quarter guidance. We will then transition to answer your questions. Before we begin, please note that today's discussion contains forward-looking statements based on the environment as we currently see it, and as such, are subject to various risks and uncertainties.

It also contains references to non-GAAP financial measures that we believe provide useful information to our investors. Our earnings release and most recent annual report on Form 10-K and other filings with the SEC provide more information on specific risk factors that could cause actual results to differ materially from our expectations. They also provide additional information on our non-GAAP financial measures, including reconciliations where appropriate, to our corresponding GAAP financial measures. With that, let me turn things over to Lip-Bu.

Lip-Bu Tan (CEO)

Thank you, John, and let me add my welcome. I joined Intel five weeks ago. The reason I'm here is simple: I love our company. I saw the challenges we were facing, and I could not sit on the sidelines knowing I had the opportunity to turn things around and put us back on the path to gain market share and drive sustainable growth. Q1 was a step in the right direction. Driven by Dave and Michelle's leadership, we delivered revenue, gross margins, and EPS above our guidance. I want to thank them both, as well as our teams, for the good execution, especially with the ongoing macroeconomic uncertainty. Our goal now is to build on this progress, but it won't be easy. There are many areas we need to improve, and there's no quick fixes. We must remain laser-focused on execution.

One of my biggest learnings so far is that we need to fundamentally transform our culture and the way in which we operate. Organizational complexity and bureaucracies have been suffocating the innovation and agility we need to win. It takes too long for decisions to get made. New ideas and people who generate them have not been given the room or resources to incubate and grow. The unnecessary silos have led to bad execution. I'm here to fix this. I'm taking swift actions to simplify the way we do business and drive transparency and accountability across the company. We will empower smaller teams to move faster and make better decisions, and we will significantly reduce the number of layers that get in their way. As a first step, I have flattened the structure of my leadership team.

All critical product, manufacturing, and G&A functions, which were spread over two to three layers, are now directly reporting to me. This will allow me to get closer to our product and engineering groups and work directly with them to close the gaps with competition more quickly. I will apply the same streamlining approach across the company with a focus on empowering our engineering talents to create great products and make it easier for our customers to do business with us. To accelerate this simplification, we are taking more costs out of the business. To lower our calendar 2025 and calendar 2026 OpEx targets. We now expect OpEx of $17 billion this year and $16 billion next year.

In addition, as we continue to identify ways to operate our manufacturing network more efficiently, I have directed our teams to find an additional $2 billion of savings in our gross CapEx, taking our target for this year to $18 billion. We will continue to take a closer look at our existing factory footprint to ensure that we are making the most efficient use of our installed capacity before committing to any additional spending. I will continue to make the needed investment to reignite innovation even as we reduce our overall expenses by minimizing projects and programs that have been taking attention away from our core client and server business.

They will include revitalizing our engineering core. I'm rebuilding our engineering talent pool with urgency by promoting strong leaders internally, bringing back critical lost talent, and recruiting new people. In addition, we are mandating a four-day-per-week return-to-office policy, effective Q3 2025. I know firsthand the power of teamwork, and this action is necessary to reinstill a more collaborative working environment, improving efficiency and boosting innovation. By eliminating inefficiencies and transforming how we do business, I strongly believe we can reduce our costs while securing our future. Many of you have asked about my longer-term strategy plan. It is an appropriate question. It's a little bit too soon for me to provide all the details, but let me share with you my priorities.

First, the best products always win, and it is very important that we refocus our core franchise to start building best-in-class products again. We have a good foundation. Our ecosystem in client and data center computing is valuable and durable, and we still maintain a large market share in both. My focus will be ensuring that our team builds products that are highly competitive and meet the needs of our customers as we enter a new era of computing defined by AI agents and reasoning models.

To achieve this, we are taking a holistic approach to redefine our portfolio to optimize our products for new and emerging AI workloads. We are making necessary adjustments to our product roadmap so that we are positioned to make the best-in-class products while staying laser-focused on execution and ensuring on-time delivery. However, I want to emphasize that this is not a quick fix here. These changes will take time. Our goal is to become the platform of choice for our customers. This requires us to radically evolve our design and engineering mindset and anticipate the needs of our customers well in advance.

I have received direct feedback from many of our largest customers who are also close personal friends. I'm taking this feedback to heart and using it to inform and change our approach to product and platform design. Second, we need to refine our AI strategy with a focus on emerging areas of interest. My experience helping successfully fund and incubate many startups in this space provides unique insights that we will leverage in these funds. Our goal will be to take an integrated system and platform view to develop full-stack AI solutions that enable more accuracy, power efficiency, and security for our enterprise customers. Our goal will be to enable the next wave of computing defined by reasoning models, agentic AI, and physical AI.

Third, we need to build trust with foundry customers. We have a lot of important building blocks in place, including the ramp of Intel 18A in the second half of 2025 to support the launch of our first Panther Lake SKU by year-end, with additional SKUs coming in the first half of 2026. However, I know from my years at Cadence Design that success in foundry business requires more than process technology manufacturing capabilities alone. It is first and foremost a customer service business built on a foundational principle of trust, and we need to instill a customer service mindset across our foundry business. Success in foundry relies on recognizing that each customer uses different design tools, methodologies, and styles. As a foundry, we need to ensure that our process technologies can be easily used by a variety of customers, each with a unique way of building their products.

To do this, we are more rapidly embracing industry-standard EDA tools and best design practices. Here again, there's no quick fix, but we will make the necessary changes to our roadmap to deliver on the commitments we make to our foundry customers. We must learn to delight our customers by building wafers that meet their required power, performance area, cost, quality, yield, reliability, and on-time schedule. While we are currently focused on delivering Intel 18A, we are also working closely with customers to define the critical KPIs to ensure online delivery of Intel 14A. Lastly, we need to strengthen our balance sheet. Our business is capital-intensive, and we have important investments to make at a time when our financial performance is not where it needs to be. This means we need to be prudent with capital.

In addition to new targets of OpEx, CapEx, we will also look to further monetize non-core assets. I'm very pleased to have Silver Lake as an investor in Altera and welcome on board Raghib to help drive the business to its potential. In addition, we have made the decision not to spin off Intel Capital, but to work with the team to monetize our existing portfolio while being more selective on new investments that support the strategy. We need to get our balance sheet healthy and start the process of deleveraging this year. As we are building the new Intel, you can expect us to stay humble, drive the necessary changes to delight our customers.

My promotion has always been to underpromise and overdeliver, and I will be not satisfied until we regain the trust of our customers, putting the company on a sustainable path of gaining shares and growing revenue, and deliver consistent returns for our shareholders. With that, I will turn it over to Dave.

David Zinsner (CFO)

Thank you, Lip-Bu. Our Q1 results mostly reflected our view entering the year that our two biggest markets were poised for growth. On the client side, the end of service for Windows 10, the expected growing adoption of AI PCs, and an aging installed base following the COVID-era refresh pointed to a PC TAM growing 3%-5%. Similarly, on the traditional server side, delayed infrastructure upgrades driven by the rapid adoption of AI servers in 2024 supported double-digit CPU core growth this year on a roughly flat units.

More recently, the economic landscape has become increasingly uncertain, driven by shifting trade policies, persistent inflation, and increased regulatory risk. While we have yet to see a meaningful change in customer buying patterns, we think it's prudent to manage the business with a level of conservatism going into the second half of the year. First-quarter revenue was $12.7 billion, coming in at the high end of our guidance range, driven by better-than-expected Xeon sales. Similar to Q4 2024, we believe Q1 revenue benefited from customer purchasing behavior in anticipation of potential tariffs, though it is difficult to quantify the magnitude. Non-GAAP gross margin was 39.2%, approximately three percentage points above our guidance on much stronger-than-expected demand for Raptor Lake, combined with improved costs for Meteor Lake.

While we continue to see the mix of AI PCs growing throughout the year, the rate of growth off a lower-than-expected Q1 will be lower. We delivered first-quarter earnings per share of $0.13 versus our guidance of break-even EPS, driven by higher revenue, stronger gross margin, and lower operating expenses. I was particularly pleased to see our spending down $400 million sequentially and $700 million year-over-year as we continue to focus on optimizing our cost structure. Q1 operating cash flow was $800 million. We had gross CapEx of $6.2 billion, with offsets of $1.7 billion in the quarter, resulting in an adjusted free cash flow of negative $3.7 billion. We ended the quarter with a cash balance of $21 billion and received $1.1 billion from CHIPS grants and $1.9 billion for the final close of our NAND business sale to SK hynix.

Moving to segment results for Q1, as previewed on our Q4 2024 Earnings, we updated our segment reporting for Q1 2025. Details can be found in the appendix to our earnings deck and in our Q1 2025 10-Q. The following commentary reflects the updated segmentation and accompanying recasted 2024 financials. Intel products revenue was $11.8 billion, down 10% sequentially, but above our expectations. CCG revenue was down 13% quarter-over-quarter, below typical seasonality and in line with our expectation, with higher-than-expected volumes offset by product mix and competitive pressure. DCAI revenue was down 5% sequentially and above expectations, driven by hyperscaler demand for host CPUs for AI servers and storage compute. Operating profit for Intel products was $2.9 billion, 25% of revenue, and down $632 million quarter-over-quarter on lower revenue, partially offset by reduced operating expenses.

Intel Foundry delivered revenue of $4.7 billion, up 8% sequentially on pull-ins of Intel 7 wafers and increased advanced packaging services. Intel Foundry operating loss in Q1 was $2.3 billion, roughly flat quarter-over-quarter and in line with expectations. Structural cost improvements were offset by startup costs associated with the ramp of products on Intel 18A. Turning to All Other, revenue came in at $943 million and was down 15% sequentially, slightly above expectations. The three primary components of All Other are Mobileye, Altera, and IMS. Collectively, the category delivered $103 million of operating profit. As Lip-Bu stated, we announced on April 14 our intention to sell 51% of Altera to Silver Lake Partners for an almost $9 billion valuation, with Intel receiving net cash proceeds of $4.4 billion.

We believe the value of our remaining 49% stake in Altera will grow over time through our partnership with Silver Lake and with the addition of Raghib Hussain as the CEO. We expect this deal to close in the second half of 2025, at which point we expect to deconsolidate Altera from our financial results. Now, turning to guidance. Historically, average sequential growth in Q2 has been roughly flat with Q1. However, the very fluid trade policies in the U.S. and beyond, as well as regulatory risks, have increased the chance of an economic slowdown, with the probability of a recession growing. This makes it more difficult to forecast how we will perform for the quarter and for the year, even as the underlying fundamentals supporting growth I discussed earlier remain intact.

While we have offsets, including a global, highly diversified manufacturing footprint to help mitigate tariffs, we will certainly see costs increase, and we feel it prudent to anticipate a TAM contraction. The biggest risk we see is the impact of a potential pullback in investment and spending as businesses and consumers react to higher costs and the uncertain economic backdrop. As a result, we're forecasting a wider-than-normal Q2 revenue range of $11.2 billion to $12.4 billion, down 2% to 12% sequentially. Within Intel Products, we expect DCAI to decline at a faster rate than CCG. We expect Intel Foundry revenue down quarter-over-quarter due to pull-ins to Q1, lower wafer and advanced packaging volume, and capacity constraints in Intel 7, which we expect to persist for the foreseeable future. For All Other, we expect revenue for the sum of those parts to be roughly flat sequentially.

At the midpoint of $11.8 billion, we expect gross margin of approximately 36.5% on lower revenue and mix to our outsourced and lower-margin client products, with a tax rate of 12% and break-even EPS, all on a non-GAAP basis. As you think about the full year, we recommend you start by using the last 10 years' seasonality to model sequential changes in revenue, but be mindful of the significant uncertainty in markets today, especially due to the potential for meaningful tariffs and tight supply on our older nodes. We expect non-controlled income, or NCI, to net to zero in Q2 and for the full year to be approximately $500 million on a GAAP basis. NCI is still expected to grow in fiscal year 2026 to an updated range of $1.3 billion to $1.5 billion on a GAAP basis and meaningfully increase further in future years.

As Lip-Bu discussed earlier, we're simplifying our organizational structure and the way we work across Intel so that we innovate faster and adapt more quickly where needed to better serve our customers. As a result, we now expect 2025 OpEx of $17 billion, $500 million lower than prior expectations, with a 2026 OpEx target of $16 billion. We are likely to have restructuring charges associated with these actions, some of which may be included in our non-GAAP results. Since we have not yet estimated these charges, they are not included in our guidance. These spending reductions will be driven by numerous broad-based transformation activities. Key 2025 focus areas will be refocusing our portfolio, eliminating organizational complexity, transforming our engineering function, and continuing to drive to leading SG&A efficiency.

As Lip-Bu stated, we anticipate our 2025 gross capital investment will now be approximately $18 billion, which is below our previous guide of $20 billion, reflecting further operational efficiencies and better utilization of our construction in progress. While gross CapEx is down, we maintain our range for 2025 net CapEx to be approximately $8 to $11 billion due to uncertainty regarding timing of the U.S. government fulfilling their obligations in our CHIPS agreement. Beginning the process of delivering our balance sheet in 2025 remains a top priority for us, as evidenced by our lower OpEx and CapEx targets and the value unlock across our non-core assets. I'll wrap up by saying that Q1 was a solid quarter to start, even as the rest of the year is more uncertain. We will closely manage what's in our control and react quickly as the environment evolves.

I'm encouraged by Lip-Bu's leadership and focus on enhancing our competitive position, improving our balance sheet, and setting us on a path to deliver consistent returns to our shareholders. With that, let me turn the call back over to John to begin the Q&A.

John Pitzer (VP of Investor Relations)

Thank you, Dave. We will now transition to the Q&A portion of our call. Michelle Johnston Holthaus, CEO of Intel Products, will be joining Lip-Bu and Dave during the Q&A session. As a reminder, we would ask that each of you ask one question and a brief follow-up question where applicable. With that, John, can we take the first question, please?

Operator (participant)

Certainly, and our first question comes from the line of Ross Seymore from Deutsche Bank. Your question, please.

Ross Seymore (Managing Director)

Hi, guys. Thanks for letting me ask the question. Lip-Bu, welcome to Intel. Lip-Bu, the first question is for you. You talked a lot about increasing the flexibility and speed at Intel and, unfortunately, having to shrink the headcount to do so. How do we balance fixing the roadmap with also filling the foundry and making sure you have the unit volumes there? It seems like the flexibility and speed goals would be more quickly adopted and capitalized by going to foundry, but you have the need to fill your own Intel foundry. So balancing the internal product roadmap versus the foundry side of things is basically the question.

Lip-Bu Tan (CEO)

Yeah, Ross, thank you so much for the question. A couple of things. One is clearly the approach is basically to flatten the organization, the number of layers, so that we can really focus on the right products and then deliver the customer the solution. And then in terms of the product and the roadmap, I think clearly we need to focus on what is the killing product that we want to have and then laser focus on make sure that we deliver on time on the performance and the power so that make sure that we meet the customer requirement.

And then in terms of the foundry, clearly 18A is very important for us, for Panther Lake. And uhm secondly, I think we're clearly one by one improving the yield, the reliability, so that our internal customer can use of that. I think from the product side, they have to do the best they can and depend on whether it's inside or outside and then drive the performance of the products.

John Pitzer (VP of Investor Relations)

Ross, do you have a follow-up question?

Ross Seymore (Managing Director)

Yeah, I did have one for Dave. Dave, on the gross margin side of things, you talked a little bit about the slope for the rest of the year, but especially given the strategic changes that Lip-Bu's putting into place, the cost cutting in the OpEx side of things, and the lower CapEx that you talked about. Can you just talk about some of the puts and takes on gross margin if you think about 2025 as a whole and maybe even 2026? What are some of the goals that you have?

David Zinsner (CFO)

Yeah, sure, Ross. Uhm and I'll qualify this by saying you know it's a relatively dynamic industry out there right now, ah given the tariffs and the implications on what that might look like from our TAM and from the macro. Uh some saying this with you know some murkiness as it relates to the full year picture.

I would just say that um you know when we look out through the year, we do expect to see our mix on the client side move more to the Lunar Lake and so forth. As you know, Lunar Lake's margins are more under pressure given the memories and package, and that makes the accounting look a little funky. So that will be a headwind to our margins on a go-forward basis. Uhm and in addition, when we look at 18A, we're going to be ramping that through the year and there are startup costs associated with that, bringing that up in Arizona. So that's always going to put some pressure on gross margins through the year as well. I think as you get into 2026, things start to go the other direction. You know um Panther Lake will be ramping more in volume next year.

It's a better margin product than Lunar Lake just on you know an apples-to-apples basis. On top of that, as you know, we have 18A on Panther Lake, so it brings the wafers back into the fabs and we get the margin stacking benefit of that on our ah a kind of consolidated basis. So you know we'd expect next year to look better. Of course, all of that is subject. Ultimately, a lot of what is reflected in the margins is how we do on the top line side. So you know we have to sort through you know how tariffs impact us. I think from a tariff perspective, this year could be choppy depending on what ultimately is settled across the U.S. and abroad. We do have a global supply chain.

So we do have the ability to flex to mitigate uh a lot of the headwinds we face. It's just we can't you know obviously turn this stuff on a dime. It's going to take us time to optimize the network to what the rules are ah in terms of ah in terms of tariffs.

Ross Seymore (Managing Director)

Thank you.

John Pitzer (VP of Investor Relations)

Thanks, Ross. Jonathan, can we have the next question, please?

Operator (participant)

Certainly. Our next question comes from the line of Timothy Arcuri from UBS. Your question, please.

Timothy Arcuri (Managing Director)

Thanks a lot. Uhm Dave, can you help us just also on gross margin? Can you help us with sort of what a clean number is for March? You guided 36%, but that was supposed to have some COGS headwinds from the way you accounted for the grants, but it came in at 39%. So sort of what's the clean number for March? And then ah also you said that the Q1 number would be the trough. So ah you know I know you're guiding Q2 to 36, 5, but could it go lower than what you're guiding?

David Zinsner (CFO)

Yeah. Yeah, I mean, obviously, we thought Q1 would be a trough and it turned out to be better. So that puts some pressure on Q2 now on a relative basis. And like I said, the tariff dynamics do kind of change the outlook through the year. So that's an additional ah pressure point for the gross margins through the year. Uhm in terms of the margins ah for Q1, you know kind of cleaning that out, I mean, clearly the biggest benefit ah to the gross margins was the beat on the top line. We kind of handedly beat top line. That helped out a lot. In addition, we did better or we had more of our volume come from Raptor Lake versus Lunar Lake. And so that was mixed beneficial to gross margins.

And then we did, I think, a little bit better job in terms of just managing spending and so forth that helped out. The two bigger components were the higher revenue and Raptor Lake. I think if you strip those two things out, we would have been much closer to the guide.

John Pitzer (VP of Investor Relations)

Tim, do you have a follow-up?

Timothy Arcuri (Managing Director)

I do, yeah. So Lip-Bu, I know the prior policy uhm had been to not announce new ah you know third-party foundry customers. How do you think about that? Can you update us on sort of what you're tracking? Is there anything to help us believe that maybe you can add a tier one customer and maybe this year, ah if not sooner? I know that they want some power improvements on 18A. But can you kind of talk about that? Thank you.

Lip-Bu Tan (CEO)

Sure. Thanks, Tim. I think the priority one for us is for Intel Foundry is ramping our internal customer, like the Panther Lake I mentioned earlier. And then next step is basically build the trust with our foundry customer and the PDK, the schedule, you know to really make sure that we're really robust on that. In terms of the process technology, the priority is really focused on yield, reliability. And also, I think it's very important to understand this is a customer service mindset so that every customer has different design tool, methodology, style. We want to make sure that we really do the pattern matching so that we really optimize for their solution they want to drive. I think it's kind of a one-two step, and then we really continue to drive the efficiency and then so that we can really scale the business.

John Pitzer (VP of Investor Relations)

Thank you, Tim.

Operator (participant)

Jonathan, can we have the next question, please?

Certainly. Our next question comes from the line of Joe Moore from Morgan Stanley. Your question, please.

Joe Moore (Managing Director)

Great. Thank you. A number of elements in your letter and in your comments about kind of improving product execution. I guess five weeks into it, can you give us your assessment of Panther Lake and Clearwater Forest in the 18A product portfolio and give us a sense of you know, are those leadership products? Do you still have work to do to get to the leadership position that you want to have?

Lip-Bu Tan (CEO)

Yeah, let me start. I think Michelle will chip in. First of all, I think clearly our laser focus on execution and in terms of deliver on time, performance that we can meet the customer and industry trends and the workload. So that is number one priority for us. In terms of Panther Lake, clearly on the 18A is very important. We have the first SKU by the end of this year. Then we have additional SKU the next year. I think so far we are very focused on that, Michelle.

Michelle Johnston Holthaus (CEO of Intel Products)

Yeah, maybe just to add, Joe, I think I talked about this a little bit in our Q4 earnings. Ahm Panther Lake really matches what you see in both Meteor Lake and Lunar Lake and the way that we're going to ramp, bringing our first most performant product out first with customers and then the additional SKUs in Q1, which really allows us to line up with the commercial marketplace. That product looks quite good competitively, and we get a lot of customer interest. I think we continue to track well there.

You also asked about Clearwater Forest, and I talked a bit about that and the prioritization between Panther Lake and Clearwater Forest in Q4 as well. And so for Clearwater Forest, it has some very unique packaging that comes to market with it. Therefore, we decided to prioritize getting Panther Lake out first. And then in the first half of 2026, you'll see Clearwater Forest. I would just remind you that Clearwater Forest is an E-core-based product. It is a derivative, right, of Granite Rapids. And so it will be more of a purpose-built product than your kind of leading performance part in the marketplace. But both are on track for delivery.

John Pitzer (VP of Investor Relations)

Joe, do you have a follow-up question?

Joe Moore (Managing Director)

I do. Thank you for that. The comments that you guys made about 7 nm being constrained for the, I'm sorry, Intel 7 being constrained for the foreseeable future, uhm can you elaborate on why that is and what impact that might have?

David Zinsner (CFO)

Yeah, good. Oh, pretty simply uhm, we're doing better on Raptor Lake and Raptor Lake's an Intel 7 part. Uhm and so we obviously plan out our network to be just to the edge in terms of capacity. When things shift meaningfully like they did, we're going to be handing out. That said, that's usually a good thing for the factory. When they're constrained, they you know leverage the network to try to produce more wafers, and every wafer becomes less expensive as a result. So we obviously do like that. Ultimately, though, we do want to see these AI PC products gain more traction in the market, and we're optimistic that happens through the year.

Michelle Johnston Holthaus (CEO of Intel Products)

Yeah, maybe just to add on both 7 and 10 nm. Obviously, with the macroeconomic concerns that we see and just with the overall economy, we are particularly seeing consumer a stronger N-1 and N-2 demand in the marketplace as those system price points tend to stay rather fixed. We have been doing our best to respond to that shift. At the same time, in the commercial segment, we are seeing that Windows 10 refresh and a strong demand for AI PCs. I think there's both good and bad news in that. As you see N-1, N-2, as Dave talked about, you see a lot of that gross margin flow to the bottom line. It is also, as the AI PC ramp slows, that's also good for gross margins. But I do want you to walk away with the fact that we continue to invest in the AI PC.

We do view this as the long-term growth segment. We have our AI symposium with all the software vendors this week, and we see a ton of excitement from our customers around Lunar Lake. And so we'll be balancing our portfolio and our mix across our foundry.

John Pitzer (VP of Investor Relations)

Thanks, Joe. Jonathan, can we have the next question, please?

Operator (participant)

Certainly. Our next question comes from the line of CJ Muse from Cantor Fitzgerald. Your question, please.

CJ Muse (Senior Managing Director)

Yeah, good afternoon. Thank you for taking the question. I guess first question for Lip-Bu. You touched on your AI strategy focusing on new and emerging workloads like reasoning models, agentic AI, and physical AI. Is the plan here to reinvent x86 to succeed in the AI world or perhaps a broader portfolio, including ARM? Should we be interpreting your focus more on edge AI? Thank you.

Lip-Bu Tan (CEO)

Yeah, good question, CJ. I think first of all, as I articulate on the AI strategy, it's very important to understand the workload and then make sure that we can really deliver. Clearly, we're going to look for partnership with the industry leader to build a purpose-built silicon and a software to optimize for that platform. We like to be the compute platform for doing that. Clearly, I think one of the big areas will be the kind of edge and inference area. That will be important to have the architecture that are low power and drive efficiency. S those kind of things that we are exploring, some of this new architecture and some of this disruptive platform that we try to build. So stay tuned. Over time, we're going to start to articulate the strategy for that.

John Pitzer (VP of Investor Relations)

CJ, do you have a follow-up question?

CJ Muse (Senior Managing Director)

I do, John. Thanks. So Dave, to follow up on the OpEx guide for 2025 and 2026, do those numbers fully contemplate the headcount reductions that you are planning, or over time, could we see additional savings?

David Zinsner (CFO)

Yeah, I would say uhm you know Lip-Bu has driven us to think about the company in a leaner, more efficient, faster-to-execution kind of way. And that's been kind of the underpinning of what we are doing from an OpEx perspective. So it's all of that elimination of the bureaucracy, taking out the layers, and so forth that drive us to a number that's kind of in the $17 billion range for 2025 and $16 billion range for 2026. We are still in the process of working through the details of how we land to that number. But I feel confident based on his direction, we will land in that zip code for those numbers.

We have not yet identified what that means from a headcount perspective. There's obviously other categories of spend in operating expenses in addition to labor, and those will also be looked at. And we'll scrutinize and make sure that they are spent in a highly efficient manner. We will have more details around how we will land the $16 billion number for 2026 when we end the second quarter and do the earnings in July. I think we will have a good sense of you know what that means. Whether it can be reduced further, I think we will have to see. I think the $16 billion number, we feel very confident we can land.

We will update you in July as to for sure where that number is with a little bit more precision. I think if you asked Lip-Bu today, he would probably say there are areas where he would like to invest as well. So to the extent we're freeing up investment, it may go to some other areas that he wants to invest in. I think sixteen would probably be the good working assumption, but we'll update you in July, like I said.

John Pitzer (VP of Investor Relations)

Thanks, CJ. Can we have the next question, please, Jonathan?

Operator (participant)

Certainly. Our next question comes from the line of Vijay Rakesh from Mizuho. Your question, please.

Vijay Rakesh (Managing Director)

Yeah, hi. I was just wondering, as you look at the data center side, how you see that playing out through the year? I saw you kind of got a June and then saw a little bit.

John Pitzer (VP of Investor Relations)

CJ, apologize. Can you restate that? You broke up a little bit at the beginning of the question.

Vijay Rakesh (Managing Director)

Just wondering how the data center side would play out through the rest of the year as you look at the second half, especially.

Michelle Johnston Holthaus (CEO of Intel Products)

Yeah, thank you for the question. As we look at Q1, we saw higher than expected growth really driven by a few hyperscalers. You know we are optimistic about the rest of the year. If you look at you know the product roadmap we have with Granite Rapids coming out and Xeon 6, some of the traditional consolidation that that drives, as well as being the CPO choice as the AI head node. We are starting to see some improvement in telco as well. However, as Dave and everyone's talked about, you know we still do see a large macro concern, and we need to continue to understand what that means. Much like we talked about before in client, we are seeing strong demand on older gen parts in data center as well, and we're working through that from a supply perspective.

As stated in last quarter's earnings, I talked about our main goal being to stabilize market segment share, create margin, and you know drive up ASPs. Those are things that we're going to be laser-focused on for the remainder of the year. We do have a good product portfolio. We do see you know strength both in hyperscalers and enterprise, but rest of world is where we really see um a market segment share challenge. That is where we'll be focused.

John Pitzer (VP of Investor Relations)

CJ, do you have a follow-up question?

Vijay Rakesh (Managing Director)

Yeah, thanks, John. And Lip-Bu, congratulations on the new assignment. Uhm just looking at CapEx, and maybe this is for Dave, uhm any thoughts on how you would look at CapEx for that timeframe, 2025, 2026? Are you looking at rationalizing that given the footprint, that footprint that you have?

David Zinsner (CFO)

Yeah. Oh, go ahead. Sorry. Go ahead. Okay.

Um in 2025, you know we think we can operate to an $18 billion number, as we talked about. I would just tell you we have $50 billion or so of assets under construction you know that are a lot of which are as equipment that's still in bubble wrap. We are in some ways you know taking a more aggressive approach to driving better return on what we've spent already. And uh and that's allowing us to spend less in capital. I think that story probably plays out next year as well, uhm although I think it's too early to talk about guidance for CapEx for next year. We are going to leverage our assets under construction next year as well.

You know longer term, this is a high-intensity model, obviously. We've talked about roughly having 25% capital intensity as we look at this in a full IDM model. And I think that's probably a good working assumption on a long-term basis.

John Pitzer (VP of Investor Relations)

Thank you, Vijay. Jonathan, can we have the next question, please?

Operator (participant)

Certainly. Our next question comes from the line of Stacy Rasgon from Bernstein Research. Your question, please.

Stacy Rasgon (Managing Director)

Hi, guys. Thanks for taking my questions. Um I wanted to go back to that 7 nm uh constraint or capacity constraint. You said you're seeing a lot of demand for Raptor. I guess I'm just surprised given how good Meteor Lake and Lunar Lake are supposed to be. Like why are you seeing so much more demand for the older generation parts versus new ones? I mean, are you pushing the older gen stuff because the margins are better? Like what's going on there?

Michelle Johnston Holthaus (CEO of Intel Products)

Yeah, thanks for the question, Stacy. We're not pushing the old parts based on margins. What we're really seeing is much greater demand from our customers for N-1 and N-2 products so that they can continue to deliver system price points that consumers are really demanding. As we've all talked about, the macroeconomic concerns and tariffs have everybody kind of hedging their bets in what they need to have from an inventory perspective. And Raptor Lake is a great part. Meteor Lake and Lunar Lake are great as well, but come with a much higher cost structure, not only for us, but at the system ASP price points for our OEMs as well.

And as you think about an OEM perspective, they've also you know ridden those cost curves down from a Raptor Lake perspective, and it allows them to offer that product at a better price point. So I really just think it's you know macroeconomics, the overall economy, and how they're hedging their bets.

John Pitzer (VP of Investor Relations)

Stacy, do you have a follow-up?

Stacy Rasgon (Managing Director)

I do. To follow up on that then, so what does that imply for the Panther Lake launch, which I guess is going to happen, you said by year-end, so I guess we'll get at least one SKU by December. Most of it comes next year. But if that's happening in the midst of a macro event, tariffs, who knows, how do I think about like the launch of those new products given like demand seems to be pivoting back to the older products and the environment hasn't even gotten bad yet?

Michelle Johnston Holthaus (CEO of Intel Products)

Yeah, I think it's a very fair question. Um the Panther Lake launch matches exactly what we did on both Meteor Lake and Lunar Lake in regards to timing. So it is very aligned with how customers like to take products to market. Panther Lake is a great product both from a performance and price perspective for our customers. So I think you'll see a strong uptake of that product, right? We still see very strong commercial demand for AI PCs as they're deploying their fleets, as they're doing their upgrades. They want to future-proof their products and have that AI capability. So I don't think you're going to see that change in commercial.

And if you look at our traditional ramps, for these types of products, we tend to go faster in commercial first, and then consumers come on board. And so we we'll have to balance where is the economy at the end of the year. I feel very bullish about the Panther Lake product and our customer feedback.

John Pitzer (VP of Investor Relations)

Thanks, Stacy. Jonathan, can we have the next question, please?

Operator (participant)

Certainly. And our next question comes from the line of Srini Pajjuri from Raymond James. Your question, please.

Srini Pajjuri (Managing Director)

Thank you. Uhm Michelle, I want to go back to the comments you made about the server market, uhm in particular about the Q2 guidance. Ah I'm just curious as to why Q2 is tracking a little bit weaker. And then as we look out to the next few quarters, I know you talked you know about Granite Rapids ramping and also potentially TAM growing from a per core basis in double digits. But at the same time, you know we do have incremental competition from ARM, especially in head nodes, where I think you guys have done well. So I'm just wondering how to think about, maybe talk about why the guidance is a little softer for Q2 and then how to think about your market share you know for the next few quarters. Thank you.

Michelle Johnston Holthaus (CEO of Intel Products)

Yeah, thank you for the question. Um as I look at Q1, I mean, we had a few hyperscalers that were particularly strong in Q1. And so you know you could call that you know hedging your bets or doing pull-ins or just balancing out their portfolio. But we don't expect to continue to see that uhm into Q2. When we look at the overall macro demand, the concern around tariffs and restrictions, as well as the stronger demand for older generation parts, uhm there is more demand there than we currently can supply. You have to balance that as well. And then as I have continued to say, we are going to do everything we can to stabilize market segment share. Uhm that also creates a lot of margin and ASP pressure that we need to balance throughout the year. And so Granite Rapids is a great product.

We are seeing excitement from our customers around that, particularly in the consolidation, particularly with edge AI, a lot of excitement from customers about finding ways to be able to offer service revenue there. Um but at the same time, as you said, there is good competition. We are just being, I think, very prudent in what the year looks like. We understand there is competition, but we have got a good product portfolio. But as Lip-Bu said, we want a very strong say-do ratio. So we are going to commit to a number that we can beat.

John Pitzer (VP of Investor Relations)

Srini, do you have a quick follow-up?

Srini Pajjuri (Managing Director)

Yeah. Uhm and then on Panther Lake, I know Lip-Bu said it is a priority to ramp 18A um with Panther Lake. Um I know in the past, ah your target was to, I guess, bring in 70% of the die in-house to 18A. I am just wondering if that is still the target. And then as we look forward to Nova Lake, has the decision about internal versus external been made yet? If so, you know maybe you can give us some color on that as to what % or you know how you think about internal versus external mix for Nova Lake. Thank you.

Michelle Johnston Holthaus (CEO of Intel Products)

Yeah, um both are great questions. When we look at 18A, our goal of you know bringing everything in-house, getting to a 70%, approximately 70% mix remains um steadfast, and there's no change to that POR. Panther Lake helps us get on that journey. Uhm you know Pat talked about this in Q3. I talked about it in Q4 you know. One of the great strengths we have is the fact that we do have optionality when it comes to where we build our products. We build products with TSMC, Samsung, and Intel.

And so when you look at Nova Lake, really what we have done is we've optimized at the SKU level the process node that we're going to use. When you look at Nova Lake, you'll see product both at TSMC and you'll see product internal to Intel. But when you look at the aggregate of Nova Lake, we will build more wafers on Intel process than we are on Panther Lake. So that commitment to continue to drive wafer growth with our internal foundry partners remains steadfast, and there's no change to strategy there.

David Zinsner (CFO)

I just add one other thing that I come over the top of the organization on is we ah are going to continue to balance internal and external ah manufacturing of wafers. We do that because that's part of our capital strategy to maintain a reasonable capital intensity relative to the business. So just as much as we're pushing on filling the fab and making sure we're utilizing all of our assets and leveraging the investments we've made on the process side, we also want to make sure that we're not over-investing in capital and are left ultimately uh with a bad answer from a return on asset perspective. So that's part of our smart capital strategy, always to keep a certain percentage of our wafer capacity outside.

John Pitzer (VP of Investor Relations)

Thank you, Srini. Jonathan, can we have the next question, please?

Operator (participant)

Certainly. Our next question comes from the line of Thomas O'Malley from Barclays. Your question, please.

Thomas O'Malley (Managing Director)

Hey, guys. Thanks for taking my question. This one's for Dave, a little more shorter term. Just if you look at the first 20-something days of the quarter here, I was surprised that you saw a little bit of weakness on the client side. Obviously, data center down a little bit more. Could you maybe just give us an update on if you're seeing any pull-ins, any changes in dynamics from a geography perspective, any customer behaviors that are looking any different for the first couple of days of this quarter, just as it helps as a framework for the entire market and then also for you guys as well?

David Zinsner (CFO)

Yeah, I would just say that ah for the first whatever number of days that is, I didn't count it, so I'm assuming it is 20 days. Uhm e are off to a relatively strong start. Uhm but what we are anticipating and what's built into our guidance is that ah you know the macro is going to start to catch up to the ah implications of the tariffs. And so June is likely to be softer than our strong start to the quarter. But so far, we're off to a strong start. Of course, I can't completely rule out that it might continue through the whole quarter, in which case we're probably looking at the higher end of the guidance. But for now, we've built in the expectation that tariffs will start to weigh on the macro.

John Pitzer (VP of Investor Relations)

Tom, do you have a follow-up?

Thomas O'Malley (Managing Director)

Yeah, I do. Michelle, in December when we chatted, when you first took over the job, you spoke about product being first. Ah and specifically, we talked about the data center side of things. And I think earlier to CJ's question, you addressed the edge. If you look at the products that you've had with Gaudi, Falcon Shores inside the data center specifically, could you talk about what the strategy will be going forward? Are you planning on launching a new product? I think at the time you said, "We need to learn with what we've already had, so we're not starting from scratch." But any update to that strategy, particularly inside the data center?

Michelle Johnston Holthaus (CEO of Intel Products)

Yeah, I'm glad that you asked. Actually, you know in the first five weeks that Lip-Bu's been here, he and Sachin have spent a significant amount of time relooking at our whole AI strategy, our portfolio of assets, how we need to come to market to be able to compete in that marketplace. You've heard Lip-Bu really talk about the fact that we want a workload-first approach. And so in Q4, I talked about the fact that we weren't going to build Falcon Shores, right, and that we were going to stay with the POR of Jaguar Shores. We still have a Jaguar Shores product on our roadmap.

Sachin and Lip-Bu over the coming month or so will start to talk externally about what our AI roadmap looks like, what we'll do in between then, and then as we really dive in with our customers on that workload roadmap, what needs to change. But I think you'll see us be quite aggressive. We know that that is a segment of the data center market that we're not competing in today, and we need a robust portfolio as all the customers are looking for alternatives.

John Pitzer (VP of Investor Relations)

Thanks, Tom. Jonathan, can we have the next question, please?

Operator (participant)

Certainly. Our next question comes from the line of Vivek Arya from Bank of America Securities. Your question, please.

Vivek Arya (Senior Research Analyst)

Ah thanks for taking my question. Lip-Bu, for the first one, you said there are no quick fixes. So how much time realistically should investors be prepared for in terms of Intel turnaround? Is it one year, two years, three years? And related to that, what are the right metrics to measure that progress? Is it share gains? Is it gross margins? Is it free cash flow? Basically, what metrics are you optimizing for, and what is the timeline ah in order to achieve that?

Lip-Bu Tan (CEO)

Yeah, Vivek, it's a good question. So I think clearly there's no quick fix, and as you described. And ah as we're working through the roadmap and weekly update with the team and then defining what is the new workload looks like in terms of the you know the CPU, GPU, and AI, and then driving some short-term and some longer-term ah products. In the shorter term, we may embrace some of the disruptive technology that's out there, and we can partner with them to bring the market faster and ah then meet the customer requirement. So I think stay tuned.

I mean, those are the things that we are working on. Ah in terms of the matrix, clearly we want to have the best products. And that is really, you know especially addressing the edge, it has got to be power efficiency and also able to drive the performance that we like. And a time to market is critical on schedule. And so those are the things that we look at in terms of matrix to really deliver what the industry wants and customers want. That is something that we are working on.

John Pitzer (VP of Investor Relations)

Vivek, do you have a quick follow-up?

Vivek Arya (Senior Research Analyst)

Yes, thanks, Tom. So on the IDM structure, Lip-Bu, given your experience in the industry, what we have seen from the outside is that the most successful businesses in semis are either fabless or dedicated foundry. A few years ago, when Intel started to give out financials for the manufacturing business, the hope was that that would turn it around. What we have seen is just consistently negative ah gross margins. Do you think that just 18A progress is sufficient? You know just kind of low single-digit top-line growth is sufficient to make this business viable? So at what point you know do you need to rethink whether this IDM structure, regardless of the way financials are broken out, does it make sense?

Lip-Bu Tan (CEO)

Right, I think it's a good question. I think clearly ah we want to have that kind of balanced approach. One is our you know the foundry got to be able to deliver the product that internal customers need and also can serve our Intel customers well ah so that we make them the simplicity and also online schedule to deliver.

And then meanwhile in that respect, we clearly view TSMC as our partner. And they have been very good partners to have. And Morris and C.C. are a very long-time friend of mine. And we also we met recently, tried to find areas we can collaborate in and ah so that we can create a win-win situation. And meanwhile, we continue to drive the efficiency, the yield, that 18A and also look at with the customer, what can we do on the 14A and then so that we can really wisely, effectively use some of the foundry footprint that we have.

John Pitzer (VP of Investor Relations)

Vivek, thank you. Jonathan, we've got time for one last question, please.

Operator (participant)

Certainly. Our final question for today comes from the line of Aaron Rakers from Wells Fargo. Your question, please.

Aaron Rakers (Managing Director)

Yeah, thanks, John, for fitting me in. I guess maybe the first question would be just as I think about the guidance that you gave and more importantly, the operating expense structure that you talked about in 2025 and 2026, just to be very clear, that's exclusive of the pending divestiture of the 51% stake in Altera. Ah I guess that's just a point of clarification.

David Zinsner (CFO)

Yeah, let me decide what exclusive means. But um essentially, the $17 billion in 2025 and the $16 billion in 2026 actually assume Altera's OpEx is in that number. Now, you know obviously, as soon as we deconsolidate, it won't be. So you know the target of the $16 billion will come down ah you know dollar for dollar for what Altera is spending in terms of OpEx. Ah but given that it hasn't closed, we don't know the timing of when it closes. It was a little difficult to provide anything ah with that built into the forecast, so we just included it.

John Pitzer (VP of Investor Relations)

Aaron, do you have a follow-up?

Aaron Rakers (Managing Director)

I do. It's maybe more strategic back to kind of the core data center AI strategy. And I know it's early days, but Lip-Bu, I'm curious of how you think about you know rack scale ah networking and the pieces that Intel has internally to really compete ah in the cloud infrastructure AI build-out. Uhm is it UCIe? Is there other pieces of the building blocks that you think strategically is needed to really drive if it's with Jaguar Shores or you know how that strategy plays out around the networking scale upside?

Lip-Bu Tan (CEO)

Yeah, it's a good question. So let me start first, and then Michelle will add on to it. So clearly, the rack scale approach of the system, I think, is very important that we need to have a full scale ah in hardware and software to do it. And then clearly leverage on our XPU, and our CPU, and GPU approach and then to drive that. And I think that will be something that we kind of work on and then come up with a killing product that we can really launch the product.

Michelle Johnston Holthaus (CEO of Intel Products)

Yeah, maybe I would just add that we are seeing great success with the IPU products that we've built. We will see at least double-digit or, uhm excuse me, doubling of that revenue from 2024 to 2025. Uhm we also see optics as a critical element of that rack scale architecture as well. And I think I would just remind everybody that Intel is the only foundry out there that has an optics-based foundry option for our customers.

And so we're very optimistic that those two things add to the overall opportunity to build out that rack scale architecture. Also, just our Open x86. What we are seeing is that customers do love the x86 ecosystem, the software around it. And if they can build out an AI infrastructure with x86, they are very interested in doing that. We already have one large custom design win, and I would expect more.

Aaron Rakers (Managing Director)

Thank you.

Lip-Bu Tan (CEO)

With that, thank you for joining us today. Ah we have a clear opportunity to strengthen our business in both products and foundry. We have clear priorities to better serve our customers and create value to our shareholders. I look forward to work ahead as we build a new Intel. Thank you.

Operator (participant)

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.